FAR Cash · Updated November 2026
Compensating Balance vs Restricted Cash: How Should It Be Presented?
A cash balance can be unavailable for ordinary use for different reasons, and presentation depends on the actual restriction.
Compensating balance
A compensating balance is cash a borrower agrees to maintain, often because of a lending arrangement.
Restricted cash
Restricted cash is cash whose use is limited by contract, law, or another binding purpose.
Presentation focus
Questions often turn on whether the balance is truly restricted, whether the restriction is current or long term, and what disclosure is needed.
Exam strategy
Ask who imposed the restriction, whether it is binding, and when it is expected to lapse.
The takeaway
Compensating balances can create cash restrictions, but presentation depends on the actual legal and timing facts.
Related Summit resources
FAQ
Is every compensating balance unrestricted cash?
No.
Can restricted cash arise outside bank loans?
Yes.
What timing issue matters?
Whether the restriction is current or long term.